Sebi revamps securitisation trustee norms

Regulator makes it easier for banks and financial institutions to act as trustees, establishes new code of conduct to safeguard investors' interest

To deepen the securitisation market, the Securities and Exchange Board of India (Sebi) has made it easier for banks and public financial institutions to act as trustees, while a new code of conduct has been put in place to safeguard investors’ interest.

Amending its Securitised Debt Instruments Regulations, Sebi said the move would further develop the  market and “rationalise and clarify the role and responsibilities of trustee”.

The amendments have been made to allow banks and public financial institutions to act as trustees, without obtaining registration. These also provide for terms of appointment and capital requirement for trustees and make it mandatory for the trustees to provide a summary term sheet.

The term sheet would include disclosures on originators, issuer, trustee, transaction structure, key pool features and credit enhancement and would help enhance the confidence of investors in securitisation transactions.

Securitisation involves creating a financial instrument by pooling together illiquid assets and then selling them to investors as securities.

Under the new norms, a trustee would need to have a net worth of at least Rs 2 crore, at least two employees with minimum five years of experience in securitisation and with required professional qualification, among other conditions.

A trustee will have to supervise the implementation of the covenants regarding creation of security for the securitised debt instruments, resolve the grievances of investors and protect their interest, ensure sufficient funds for payout to investors and conduct regular due diligence on assets, etc.

Under the new norms, the trustee would call for periodic reports, supervise the implementation of conditions regarding creation of security for securitised debt instruments and take steps to ensure protection of investors as well as resolve their grievances.

Besides, they would have to appoint a compliance officer for performing duties, including monitoring compliance of the various rules and redress of investor grievances.

The trustees need to ensure on a continuous basis that the trust property is adequately available at all times to pay the securitised debt instrument holders.

As per a code of conduct for the trustees, they are required to avoid possible conflict of interest.